Variable Salary Sacrifice

MX5huggy

Is varying Salary Sacrifice month to month only an advantage to 40% tax payers?

We’re just being allowed to vary our SS AVC contributions easily each month but as a 20% tax payer I don’t think there is a tax advantage in doing this?

As always we have to keep our gross pay above National Minimum Wage. 

Grumpy_chap

Most forms of SS cannot be varied "at will"
SS for pension contributions is an exception and can be varied whenever the employee chooses.

Has your employer simply confirmed what the rules are, or is there another reason the employer is suggesting to vary the SS pension contributions each month?
Regular varying the percentage contribution could be useful for individuals with a highly variable component of their reward package - maybe commission or such like.

It is good that the employer is being fully flexible - despite the tax rules permitting regular change on SS pension contributions, some employers restrict this to annual (or another periodic) change to manage the admin burden.

Pat38493

Theoretically you might be able to game the NI cycle a bit by playing around with contribution levels and pay less NI over the whole year, but then you have to watch out for making sure you get your state pension credit for the year as well.  

It might be that you are betting off cramming a lot of your pension contributions into a shorter period than the whole year but I haven’t tried to figure it out in detail.  I doubt it makes much difference.

My employer allows the same, but I generally use it for avoiding tax bands like 60% tax trap.

af1963

Even for a 40% tax payer. I can't see any obvious tax advantage - tax is worked out annually. Might be some smallish effects around NI differences if you could load more of your salary into a single month by reducing the sacrifice amount, so you pay the reduced NI rate that kicks in above about £4K per month on part of it, then go back to a higher sacrifice for other months.

The flexibility can still be useful though even if no specific extra savings.

QrizB

af1963 said:

Even for a 40% tax payer. I can't see any obvious tax advantage - tax is worked out annually.

National insuance, however, is worked out weekly.

The savings that can be made by "lumpy salsac" are NI savings, not income tax ones.

Ciprico

I'm a 20% tax payer and still salsac as much as I can, on the basis any gains are tax free, and when I come to draw it the 25% tax free results in a (6%) gain.

I also save some NI.

I suspect if one was a 40% tax payer in retirement it would not make sense to salsac as a 20% tax paying employee.....

leosayer

Ciprico said:

I'm a 20% tax payer and still salsac as much as I can, on the basis any gains are tax free, and when I come to draw it the 25% tax free results in a (6%) gain.

I also save some NI.

I suspect if one was a 40% tax payer in retirement it would not make sense to salsac as a 20% tax paying employee.....

If you pay NI at 12% then then your 6.25% gain turns into a 25% gain.

ussdave

af1963 said:

Even for a 40% tax payer. I can't see any obvious tax advantage - tax is worked out annually. Might be some smallish effects around NI differences if you could load more of your salary into a single month by reducing the sacrifice amount, so you pay the reduced NI rate that kicks in above about £4K per month on part of it, then go back to a higher sacrifice for other months.

The flexibility can still be useful though even if no specific extra savings.

Another forum member wrote a calculator to help work out potential benefits of lumpy SS.  It's actually fairly significant.

https://forums.moneysavingexpert.com/discussion/6455528/increasing-national-insurance-savings-by-making-large-pension-contributions-in-minimal-months

Pat38493

ussdave said:

af1963 said:

Even for a 40% tax payer. I can't see any obvious tax advantage - tax is worked out annually. Might be some smallish effects around NI differences if you could load more of your salary into a single month by reducing the sacrifice amount, so you pay the reduced NI rate that kicks in above about £4K per month on part of it, then go back to a higher sacrifice for other months.

The flexibility can still be useful though even if no specific extra savings.

Another forum member wrote a calculator to help work out potential benefits of lumpy SS.  It's actually fairly significant.

https://forums.moneysavingexpert.com/discussion/6455528/increasing-national-insurance-savings-by-making-large-pension-contributions-in-minimal-months

Nice calculator which didn't seem to get much attention back in June.  Funnily enough I am already doing something similar to this during this tax year, although it was actually done for other reasons, so I guess I got lucky there.

Pat38493

ussdave said:

af1963 said:

Even for a 40% tax payer. I can't see any obvious tax advantage - tax is worked out annually. Might be some smallish effects around NI differences if you could load more of your salary into a single month by reducing the sacrifice amount, so you pay the reduced NI rate that kicks in above about £4K per month on part of it, then go back to a higher sacrifice for other months.

The flexibility can still be useful though even if no specific extra savings.

Another forum member wrote a calculator to help work out potential benefits of lumpy SS.  It's actually fairly significant.

https://forums.moneysavingexpert.com/discussion/6455528/increasing-national-insurance-savings-by-making-large-pension-contributions-in-minimal-months

Question though - if the company is sharing 50% of their employer NI saving with the employee as an additional pension amount, does this change the calculation?

MallyGirl

ussdave said:

af1963 said:

Even for a 40% tax payer. I can't see any obvious tax advantage - tax is worked out annually. Might be some smallish effects around NI differences if you could load more of your salary into a single month by reducing the sacrifice amount, so you pay the reduced NI rate that kicks in above about £4K per month on part of it, then go back to a higher sacrifice for other months.

The flexibility can still be useful though even if no specific extra savings.

Another forum member wrote a calculator to help work out potential benefits of lumpy SS.  It's actually fairly significant.

https://forums.moneysavingexpert.com/discussion/6455528/increasing-national-insurance-savings-by-making-large-pension-contributions-in-minimal-months

I did this a few times and discovered (the hard way) that my employer had an undocumented limit of 70% of salary so I ended up with anything over that going in to the pension via a different method which did not save me the NI. Probably a lazy way of ensuring minimum wage was still paid. I decided after that it wasn't worth the effort.